Many emerging market and global investors face steep downgrades on their Russian holdings due to sanctions imposed around the world in the wake of last month’s invasion, which made Russia “unworkable” for some.
“At this point it is too early to say whether the war is driving outflows or whether other factors are to blame.”said Robin Brooks, chief economist at the IIF. “But we think these departures are notable enough to at least raise the possibility that the Russian invasion of Ukraine may be pushing global markets to look at China in a new light.” he added.
As indicated, the link with Russia would be consistent with the relatively recent nature of the observed outflows.
Flows into Chinese debt and equity portfolios have held up for the most part even through a sell-off in stocks and bonds triggered by a change in Beijing policy that pressured the real estate sector and peaked last year. .
Monthly net flows to emerging markets outside of China all but stopped in the last quarter of 2021 and the trend continued in 2022.
However, daily high-frequency figures compiled by the IIF show a dramatic change in flows from a mid-December peak, especially out of Chinese equity portfolios, exacerbated in late February.
What is unprecedented, according to the IIF, is that investors are pulling out of China while the rest of the emerging markets are holding on. The investors they may fear that if China actively supports the invasion of Russia, is doomed to a round of sanctions similar to that of Moscow.
“As long as we’re in this situation, I think there are going to be concerns that if China really supports Russia … it could be included in the sanctions as well,” said Rick Meckler, a partner at Cherry Lane Investments in New Jersey.
“Russia was very revealing. After all, these are companies with a fairly large market capitalization,” commented.
China has not condemned Russia’s actions in Ukraine, although it has expressed deep concern about the war.
Source: Ambito
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